Post a CommentToday I am opening my 9th trade of the year between 2 stocks that trade at similar P/E ratios. As is always the case you can see the existing live trades here:
http://www.intelligentspeculator.net/livetrades
Let’s start off by looking at the numbers:
| Ticker | Name | Price | PE Ratio | PE Next Year | Return YTD | Sales Growth | Analyst rating | Book Value | Beta | Revenue/Share | Sales 5Y Avg Growth | EPS 5Y Avg Growth |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| MSFT | Microsoft Corp | 54.35 | 22.66 | 17.78 | -1.35 | 7.77 | 4 | 9.69 | 1.22 | 11.44 | 3.91 | -3.99 |
| EXPE | Expedia Inc | 114.3 | 52.63 | 17.1 | -7.83 | 15.77 | 4.14 | 32.37 | 1.16 | 51.26 | 18.34 | N/A |
Microsoft has a good story going on (more on that later) but the clear winner in terms of growth is Expedia.
Long Expedia (EXPE)
Over the past year or so, I’ve been more impressed with its execution and I am starting to believe that Priceline (PCLN), Tripadvisor (TRIP) and Expedia (EXPE) are the 3 giants that will continue to do well over the next few years. Expedia has been able to secure key partnerships and focus on the customer experience. I do think EXPE will be able to keep up the strong growth that it has seen in recent years.
Next earnings: April 28th 2016
Short Microsoft (MSFT)
It does feel strange for me to short Microsoft here. I do usually short names that I no longer think are overvalued in the short term but also over the long term. I am a strong believer in most of the actions by Microsoft in recent months and certainly think it has given itself a shot to thrive in this new cloud/mobile world.
–Cloud space: Apart from Amazon’s AWS, you could argue that Microsoft and Google are the only 2 significant players. Thanks to its already strong enterprise presence, I’d tend to believe that MSFT will continue to do extremely well here
–Mobile: Windows Phones are not a clear success it’s safe to say but Windows is working on other ways to profit from this new mobile environment. It has built a solid suite of prodcutivty apps (Outlook, Wunderlist, Skype, office, etc)
That being said, there are still significant challenges especially when you consider the source of much of Microsoft’s revenue; Windows and office.
With PC sales declining and Windows market share on mobile being so small, this new world brings major challenges to Microsoft from a growth perspective. I do think that the company will be able to thrive but I’m not sure it makes sense for MSFT to be trading at the same P/E as EXPE.
Next earnings: April 21st
Your analysis of the numbers is always outstanding, however, the narrative counts for something too.
You’re now long 2 travel related stocks: EXPE and TRIP, both of which are underperforming the market this year. IMHO the travel industry will continue to be a bad area of investment, as long as terrorism is around.
Meantime, MSFT has a new competent CEO that is revitalizing the company, which is why MSFT is outperforming the market this year.
Conclusion: I like long MSFT, short TRIP or EXPE.